The most satisfaction and fun Mary & I have in real estate is working with first-time home buyers on a limited budget. Helping someone buy their first home - something many of them never dreamed they would be able to do - is always a warm fuzzy experience for us as well as them.

It has become much rarer in the last couple of years. With persistent low inventory, and a vigorous regional economy generating strong demand, our affordable home market has all but vanished.

Even our reporting of it has changed. Affordable used to mean under $200K. When those became scarce, we raised the limit on our market reports to $225K, and then again to $250K, but that was just so we could have some data to report. The fact is that the higher limits didn't really reflect the market - affordable home buyer's incomes weren't keeping pace with prices or our artificially raised limits, and we were just tiptoeing around the fact that there weren't any affordable homes for sale that matched those buyer's budgets.

Let's take a detailed look at what has happened over the last 5 years. We'll focus on Fort Collins, but the results are effectively the same across all northern Colorado housing markets.

We'll start with Median Price. A quick look at the graph is all that's needed to see the overall situation - median home prices have risen over $100K in the last 3 years. And while the data points reflect specific home sales by month, the trend line certainly indicates a strong increase in home values.

Now let's look specifically at what's going on with the under-$260K segment of the market.

Closed Sales tell the story clearly - affordable home sales last month are at levels around 10% of what they were three years ago - 114 affordable homes closed in April 2013, and 13 closed in April 2016.

And a look at affordable home Inventory shows that there are significantly less affordable homes available, while a look at the Days on Market and the Month's Supply of Inventory tells us that the interest in those homes hasn't diminished.

And even in the affordable home category, we can see from the $/Sq.Ft. graph that a limited budget is now buying a lot less house than previously.

This is so discouraging, and there simply may not be a reasonable solution. As we wait for the law of supply and demand to generate more inventory in response to high demand and rising prices, we realize that will have minimal effect on the affordable housing market. When home owners do become sufficiently incentivized to place their homes on the market by those rising prices, few of them are going to appear in the actual affordable price range.

If we can't find a way to increase incomes for affordable home buyers, they'll never catch up with the market. And worse, they may not find any reasonable housing alternatives at all, with rents following - or in some cases leading - the rising trend line. The effect is going to entail a major socioeconomic shift in the nature of our northern Colorado communities, as we become less economically diverse.

We are still working with affordable home buyers, and we do have occasional success, finding that needle in a haystack. Those are joyous times, but there are far too few of them these days.

Comments

Good morning Dick Greenberg,

We are finding the same thing in our Austin market. It's tough out there for the first time home buyer with little down payment and lower income. The only difference is in Austin we have many in the hi-tech field making good income and their first home will be a higher priced home.

Hi Dick Greenberg - This is great insight backed up by hard data. You did a beautiful job with this. Your findings are extremely discouraging. I saw this happening in SoCal when I was there. My husband and I bought our first townhome for $16,500 at 20 years old (1972). Four years later we sold it for $24,000 and bought a $42,000 home. Fast forward to today... My first "1st Time Buyer" was my son at 38. He & his wife had to live with us to save for a down payment. If you go outside of Sedona there are homes under $200k available. My average buyer is looking at a 2nd or 3rd home or retiring.

I think this is why you are seeing a surge in "Tiny Homes"! The mindset of our younger population has changed (forced or not...another discussion!) and I am not sure we will see very many of those under 30 buying homes in the future.

Dick Greenberg the percentage of kids living with their parents is at an all time high of 30%. Affordability is non-existent here in Santa Barbara, and in many parts of the country where we work. You illustrated it beautifully. A

Dick Greenberg that is a great way to look at it with data to back it up. I have seen a similar trend here.

Posted by Scott Godzyk, One of Manchester NH's Leading Agents (Godzyk Real Estate Services) almost 3 years ago

This is such a great post. In so many ways. We have to be sensitive to it by now, as the prices (as you indicated with a lot of really great year by year graphics) are simply rising so steeply in certain areas that "kids" can't compete. Let's take that a couple of steps further. One, it is allowing a generation of "things available at their fingertips" to learn a valuable lesson. No. It's not always readily available. Sometimes you have to be resourceful and patient. Sometimes you don't get what you want. I don't think this is a terrible lesson to learn, although I still feel for them. And two, it's driving a lot of you Colorado and Cali people here to Texas, where, right now, things are still available at entry level prices. It's still extremely competitive, though, as Austin Dorie Dillard above indicated. But we (TX) are still attractive because of this huge difference in cost of living and job availability. Love this post. And understand it is not easy for these buyers or for you, as their pros. Hang in there.

Dick it is so rewarding to be able to assist first time buyers in getting into their very own home. I know you and Mary have enjoyed doing so for many years. It's heartbreaking to see the almost non-existent opportunities for affordable homes in your area. You've very clearly showed with your graphs and explanations what's happened the last few years - and it's not a pretty picture unfortunately.

Dick income as you have so well pointed out is a major factor in the affordable housing market. Incomes have not been going up, in fact they have been going down with people becoming unemployed and then finding jobs which pay less than they were receiving. We have to put America back to work again, and that means bring jobs back from overseas.

Hello Dick, this is a great post and applies to so many markets. Finding a home in that affordable price range is indeed very similar to finding a needle in a haystack but it does happen. Buyers do need to be realistic with their expectations or they will be renting for years to come.

Dick this is a similar situation in our community just imagine we used to consider the entry point into the market at three times the price of your entry point and it is having similar effects..... a bit scary, Endre

Dick, classic supply and demand, and with incomes stagnating well there goes the bottom tier of the market. MORE 18-30 year olds living at home with their parents, that illustrates your point as well. We need a ROBUST higher income economy. Until that happens, you kill off those first time home buyers.

Dick, our market of $200K and under is quickly disappearing as well. Some, tho have been on the market for several years. Suddenly, it hasn't been about being lakefront with a 3BR/2BA $300k+property, but those who can't afford that, but want out of the city, can work remotely or just want that little vacation spot and this is all that they have.

Is the warning sign of another real estate bubble - which will grow until it bursts?

I recall reading Michael Masterson's "Early to Rise" newsletter 2 or 3 years before the bubble burst. He was telling everyone to sell right then, because when people can't afford to live where they work - and when homeowners could no longer afford to purchase the home they're living in - that bubble has got to pop.

We still have some available, which will work with a down payment assistance program, but that is an FHA product, so has to be in decent condition. We were late to the bubble last time too, so maybe your market is the canary in the coal mine.

Hi Dick Greenberg , I so appreciate what you are saying and I keep thinking quietly that there is a current unsettling in my gut that there may be a price to pay like we experienced 10 ( for different reasosns but the result is the same ) years ago if things keep going this way. Without these first timers being able to buy, the next level can not move up and it then it can cross all boundaries and many painful memories of those that were upside down come to mind. Appreciation is a good thing as long as it represents good economic indicators like jobs and salaries increasing. That doesn't seem to be happing concurrent to the price of homes increasing.

Posted by William Johnson, Retired Real Estate Professional (Retired) almost 3 years ago

I just heard from an agent the other day that a correction is coming in the next 2 years. Not sure how this happens or how to prepare for it. It sure is a roller coaster ride.

Posted by Sharon Tara, New Hampshire Home Stager (Sharon Tara Transformations) almost 3 years ago

Why isn't this featured? I fully expected to see a star. This is a big concern for all of us - or it should be...

The investors add another twist to this limited inventory - they scoop them up for cash and often pay a bit over list with plans to revamp, and make a quick profit. It breaks our hearts.

Posted by Debb Janes EcoBroker and Bernie Stea JD, REALTORS® in Clark County, WA (ViewHomes of Clark County - Nature As Neighbors) almost 3 years ago

Dick- excellent information and an education for all of us. I truly hope we don't end up where we were 10 years ago. Things clearly have changed from when we were in our 20's and buying our first house.

Posted by Kathy Streib, Home Stager - Palm Beach County,FL -561-914-6224 (Room Service Home Staging) almost 3 years ago

These are challenging times Dick with inventory (the good ones especially) going very quickly. In our market under $150,000 doesn't stay around long.

Thanks Dick. Our values are different, but the results are the same. We need to find a way for buyers to get better jobs with higher wages while not creating inflation. (Don't ask me how we're going to get this done.)

Posted by Gabe Sanders, Stuart Florida Real Estate (Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales) almost 3 years ago

I can see why Kathy chose to include your post in her weekly wrap up...great job!

Posted by Kristin Johnston - REALTOR®, Giving Back With Each Home Sold! (RE/MAX Realty Center ) almost 3 years ago

Dick, Those graphs send a very clear message. If your builders are like ours in Mason, they realized they no longer needed to build ANY homes below $500k because they could find ample buyers. Let the resale market take care of the "peasants" that only want to spend $300k and less. Bill

I work in a secondary market, and we don't have attainable home prices OR enough year-round income. My first home buyers that are year-round residents are few and far between. My daughters won't be able to afford to live here if they want to, both with excellent college degrees. Great article.

Dick, I love working with first-time home buyers. Our market for that group is typically, in the $150-$185 range, but I have noticed a shift to beyond $200K. It won't be long before a large segment is out of the market again.

I think you will just need to send your buyers back to New York. While we have our astronomical estates and pricing, we also have our first time home buyer budget. Closing costs are probably higher than yours, but first time home buyers are happy to move in. Prices have not jumped up much even though inventory seems to dip. We have the sellers that have waited a while finally jumping back into the market. So, when you run out of houses, let the buyers know we do have jobs and housing. Who would have ever thought that New York is becoming more affordable than Colorado??

And surprisingly enough Dick Greenberg - it's been considered as most affordable time to buy a home! (Some stats I have seen shows affordability index - here's from Gary Keller's speech last year...

(NAR's Housing Affordability Index measures whether a typical family can qualify for a mortgage on a typical home across the nation. The higher the index, the more affordable homes are. Affordability has been declining since January as prices continue to outpace wage growth. However, it remains historically high.)

When I think of my last 5 first timers, going back just 18 months, they could not qualify in today's market. Points well taken Dick although the income approach may be too steep to tackle by itself. Here via Kathy!

Excellent reporting on an unfortunate segment of your market. You illustrate the exact reason inventory needs are there for affordable housing. Good for you for helping those that barely make the market!

There's going to be a filler soon . . . I'm already seeing it with flexible loan products. I just mentioned something similiar to out-of-state buyers (high-end not first time) that what was a entry point for buyers 10 years ago, won't buy much now. Pity.

Posted by Carla Muss-Jacobs, RETIRED (RETIRED / State License is Inactive) almost 3 years ago

Communities that are economically restricted are susceptible communities, IMO Dick Greenberg. We had a microcosm of your Fort Collins in our area right before the downturn. So many building restrictions, rules, regulations, etc. that eliminated the true "starter" home in the area. Municipalities need to re-think some of their pre-housing crisis thinking and consider allowing smaller homes to be newly constructed. I think overall the communities that do that would be rewarded and healthier in so many ways ...

Austin is experiencing a similar trend. Affordability is a hot topic for those who don't have one of the high paying tech jobs, and who's paychecks have not seen the same rapid growth home values have. We have outlying areas, smaller towns, that people are migrating to for more afforadable options with walkability downtown centers (Elgin, Georgetown and downtown Round Rock are prime examples).

I blame those greedy people who bought in 2013 and now want to sell for a $100,000 profit. Maybe we should tax these windfall profits to fund some programs for first time home buyers.

Posted by Tim Maitski, Truth, Excellence and a Good Deal (Atlanta Communities Real Estate Brokerage) almost 3 years ago

I helped a first time home buyer 3 years ago. Now she's "moving up" to a larger home. We just put her first home on the market, and are getting offers in as we speak. I have agents calling me to show it this weekend--good luck. Who am I to tell them it will undoubtedly be under contract?

We are almost at our all time high median home price that we hit in 2005. First time home buyers are above $500K here. Ridiculous!

Posted by Cynthia Larsen, Independent Broker In Sonoma County, CA almost 3 years ago

Waiting for next crash, it's coming!

Posted by Jon almost 3 years ago

I too love that feeling of helping a first time buyer achieve success. Here in the Midwest $225,000 will get you a very nice home. In the market I typically serve, a first time buyer is looking at spending less than $100,000 and yes it is difficult to find one with the qualities required by most lenders.

Anything decent in our area is priced at $300,000 or more and it will need repairs. The alternative is the short sales that take 6 months or more to close. Bergen County, NJ.

Posted by Donna L Brown almost 3 years ago

Dick, this is truly an eye opener for the disappearance of what we once called affordable market in housing. I have noticed the changes in my market area too, and median prices keep rising. We are slowly seeing the definition of affordable change just about everywhere.

In our market we have a different kind of first timer. We call them First Time Second Home buyers. And we also have First Time Million Dollar Buyers. Both are very careful with their research and understand the usefulness of a local professional who is not licensee acting as a hobbyist. We still have fun with our first timers.

I know exactly what you mean. In the Spring of 2015 I started working with a first time homebuyer who preferred buying a single family home over a townhouse. After searching for only about 2-3 weeks, she chose to put off buying until Spring of 2016. I told her 'no problem' but warned her that since very few single family homes were available in her price range in 2015, there would be even less and possibly none in her price range a year later. Sure enough, when she was ready to start looking this year, she'd been priced out of the single family home market completely in the areas she was interested in. I still found her a nice townhouse but it's a shame that many first time home buyers are stuck with fewer choices.

Excellent reporting about a very sad phenominon going on in Ft Collins and Northern Colorado. I'm glad that our prices didn't rise that much for median homes. Our median is still about $260,000. 2 of my buyers this week are first time home buyers, thankfully. You must be frustrated!

If only they could find jobs out my way. I can help buyers with homes under 200K. At least we have a few more of them available than you probably do.

Posted by Debbie Laity, Your Real Estate Resource for Delta County, CO (Cedaredge Land Company) almost 3 years ago

We are seeing per square foot prices of high $400's into the $500's in the East Bay market. 10-Year old 2 bedroom condo (under 1300 sqft) selling at nearly 600k. No end in site for increasing prices. Median home price in nrarby San Jose is highest in the nation at over $1,000,000.

Posted by Vickie Nagy almost 3 years ago

It's a tough Market for them. Before, the Cash Buyers were buying everything up and driving the prices up along with them. Meanwhile, the rest of the economy barely registers a blip on life support, so their incomes don't rise and they're paying higher rent (on top of the high student loans), which don't allow them to save. Also, the Baby Boomers aren't down-sizing (staying put) and those underneath cannot upgrade or buy up, so they're not able to list their homes, which may be in the First Time Homebuyer price range. Of course, one of the concerns of the Baby Boomer is where would they go, if they sold their home. If a solution could be provided to them (as some may have different needs), then they can benefit from the top range of the Market before it turns. They would save a lot of money! It's always best for the higher priced homes to sell in a Seller's Market, as they have the most to lose (compared to the lower end homes -mathematically speaking, of course). Once they sell, then people in the lower price range, whom want to move up, then will have that opportunity; thus, creating opportunity for First Time Homebuyers with those property listings. Just an interesting time, we're currently residing!

Posted by Mike Bjork (CMG Financial) almost 3 years ago

I didn't make note of the numbers and dates, but just this morning Trump talked about the fact that incomes have NOT risen over the last many years.

And I can see it. Before my husband retired from home building in 1995, he was paying carpenters $15 an hour. They're still getting the same $15, in spite of the cost of food, fuel, and housing going up, up, and up.

The first time home owner in Silicon Valley has better chance to win a lottery than able to afford a home. Keep in mind as idealist they want a lot. They can do trade affordable home some commuting distantce away. Most of condos near work is 900-1100K now. SFH near Google the small homes are 1.6M. Too late.

Tim: "I blame those greedy people who bought in 2013 and now want to sell for a $100,000 profit. Maybe we should tax these windfall profits to fund some programs for first time home buyers." Great idea! If windfall profits taxes work so well, make it 100% tax, as the governments do such great jobs initiating and administering their programs. And as for those greedy individuals that spotted a trend and took advantage of it, why should they be allowed to make a profit on their endeavors? Send them to re-education camps where they can be taught to think properly, that is, for the greater good of mankind. Only then can we all be equal, with almost nothing. But count me out, I prefer free enterprise.

Posted by Carl Royer almost 3 years ago

And dont forget that those interest rates will not stay this low forever which will make this whole situation even worst

Posted by Andrzej Niemyjski (Realty One Group) almost 3 years ago

Today was a rough real estate day for me. Represented an investor on the purchase of a property in a hot neighborhood. Total tear down fixer listed at $799,000. The house was built in 1912 with several non permited additions. My clients offer was $160,000 over the asking price....tied for third place with 9 offers. Winning offer...$225,000 over. Just really unbelievable. Then showed a first time home buyer a home for $549,000 in a transitional neighborhood - a very flawed flip. The home will probably sell for $100,000 over the list price. Just depressing and why I definitely prefer listings!

Same here at the Jersey Shore. In my town, Cape Cod and ranch homes are being sold by the 85-ish original owners who bought on the GI bill after WWII. Almost without exception, they are being torn down and replaced with 895K to 1.5M homes for Wall Streeters with cash. But when the original owners sell, they want to maximize their net and a builder with cash who is not going to nitpick inspection items is their ideal buyer. And that first-time buyer who is willing to roll up their sleeves and buy a little house to work on is out of luck.

I am in Western North Carolina where the same phenomenon is taking place. Although our homes are not as pricey as some of those who have responded here, it is still frustrating. We have buyers sitting in rentals and hotels waiting for a home to come on the market, our inventory is so low. I have clients who came back to the states from the Virgin Islands this spring and they are now in a one year rental from lack of available homes to buy. I have several people afraid to sell but ready to buy, but are afraid to put their home on the market for fear of becoming homeless just to downsize. It is a very sad deal.

And I am currently working with a young professional buying her first home in the Asheville Market. Her rental lease is up September first and we are putting her in a home that will strech her budget because there are no rentals available for her to go to. They are all full of buyers waitiing for a home to come up. A real mess.

The wages here are all minimum wage so young people are priced right out of the market. The only sellers we have right are are elderly moving to assisted living/nursing homes and their homes have so much deferred maintenance!

About a third of my business, these last 2 years has been with with Veterans using VA financing and purchasing their first home. These folks have been the most appreciative and fun people to work with.

VA financing is a great program, but it does require homes pass some very rigid standards to be accepted. This complicates the situation further as there are fewer available homes in the price range - and the condition of so many of these homes is not acceptable. As you might quess, foreclosed homes rarely pass.

We need more affordable, quality housing for our first time buyers.

Posted by Warren Schutt, Helping People with Their Moves for over 36 Years (Warren Schutt Real Estate) almost 3 years ago

250k would be considered luxury in my market. The average sales price is 160k, but with a fleet of homes under the 100k mark. Of course 9 bucks an hour is considered "good" pay here so pick your poison.

Great post. Personally, I enjoy working with the first timers and rebounders. It can be challenging, but it is always gratifying as they are the most appreciative of all the effort.

Posted by Chris Lima, Local or Global-Allow me to open doors for you. (Atlantic Shores Realty Expertise) almost 3 years ago

Dick, I echo what Ann Wilkins said. I wrote an offer for a buyer not long ago. Home was listed at $799,000. Comps were a bit all over the place but that list price was supported by comps. 20 offers. The townhome style condo sold for $992,000. Working with buyers is not only a challenge for buyers ...but for the agents as well. Many buyers are leaving the area and opting for new construction.

We would kill to have anything near those prices.. The SoCal coastal market has been skyrocketing since 2012 and is well above 2007 levels.... first time home buyers hve been competing with builders with entry level homes as we are basically built out.. nothing under a million in most of the beach cities..

My sister lives in Loveland and is happy to see the value of her home moving upward after a long lull in prices..

It's the same here in Houston/Fort Bend County. Our first time homebuyers are also vying against investors with deep pockets. A first time FHA buyer with minimal down, doesn't have a chance. And forget it if they need seller contribution to their closing costs. I do agree, this is making many younger buyers realilze that they need to have debt under control and substantial money in the bank before buying.

Posted by Jeanne Gregory, The most important home I sell is YOURS! (RE/MAX Southwest) almost 3 years ago

I think the same can be said in most areas of the country. Price appreciation is making it difficult for a lot of buyers. Add in the fact that even if the buyers can afford the higher prices they are not willing to pay them. Those lessons from 2008-2011 are too recent fo people to forget what happened in the past. Graphs for my area would look similar.

Dick, though there are homes priced under $200,000 in my area, they are mostly older and under 1300sq ft gla and located in areas most buyers are not looking to move into. We need more affordable housing for first time home buyers.

Dick excellent, yet very discouraging report for first time home buyers. We're dealing with a smiliar situation in certain areas of metro PHX. I'm writing another offer today for buyers that have lost out several times and yet again there are multiple bids. Who knows how high the price will end up at.

We are experiencing the same thing. Nevada’s median household income hasn’t changed significantly in the past 16 years. Those working in the casinos or warehouses are earning far below the median. Too many of the entry level homes are being purchased for cash by investment groups, compounding the shortage. As home prices increase, so do rents. This week, I met with three first time buyers earning about $13 an hour. Finding something in the Reno/ Sparks Market they will qualify for in near impossible. If they were to find a home outside the city, they will need a better car. I can help with credit or down payment assistance but there isn’t anything I can do about their income. It breaks your heart.

Posted by Doug Kaller (Academy Mortgage, Reno, NV) almost 3 years ago

A few comments here: 1) You are right, very difficult the past couple of years for the first time buyers. Inventory so low that the new listings end up in bidding wars--and no one likes that. Some buyers think "I'll offer way over asking price and get the house--if it doesn't appraise then the seller will have to come down in price" 2) If a young couple wants a 'fixxer upper, they are outbid by flippers who pay cash and sell at big profit to upper end buyers a few months later. I feel this is one of the main reasons the middle class is shrinking in the USA. We need those first time buyers to keep neighborhoods stable and have them start building equity for the next house.

Posted by Mary Hutchison, SRES, ABR, Experienced Agent in Kansas City Metro area (Better Homes and Gardens Real Estate-Kansas City Homes) almost 3 years ago

The regulatory cost to build a home ( 40% of the cost to build in San Diego is fees) combined with land prices has driven builders that used to build entry level for sale to build for lease. We have high rises that used to be condos for sale going up, but the builders are keeping them as rentals because the ROI is so much better. That reduces inventory and drives up rents and so on and so on ...

Posted by Matt Brady, Lending With Competence And Character (Skyline Home Loans) almost 3 years ago

Looks like the new buyers in Ft. Collins are in good hands if they are dealing with you guys. New home buyers are being squeezed tighter and tighter these days - and I don't think it's going to get better - except with artificial stimulation, which is why our market is in the bad shape it is in.

Posted by John Dotson, The experience to get you to the other side! (Preferred Properties of Highlands, Inc. - Highlands, NC) almost 3 years ago

What a clear and dramatic presentation of the first-time home buyers' plight in many parts of the country. What's the answer to the problem?

Dick - this is one of the most thoughtful, heartfelt market reports I've ever read. You're explaining your market poigniantly and soulfully. I'm totally inspired to change the writing of my next quarterly report. In my area, it's extremely difficult for first timers unless they've got a significant down payment and the income to afford over asking prices...it's rare to see anything here under $400,000 that's habitable and lendable.

Affordable is changing its meaning in Atlanta, GA as well. We still have areas where you can find housing under $200,000, but they are not the most desirable. Thank you for a great (sad) article!

Posted by Donika Parker (Maximum One Greater Atl. REALTORS) almost 3 years ago

Interesting perspective. Great post. I agree that the affordable home market is in serious trouble. With rents rising to out of control levels, home ownership is becoming an even better option for low income folks, but there is a very limited supply of inventory for this market segment.

Wow, quite a sad state of affairs. We are also seeing the trend, however the numbers are no where near yours in Colorado. It's hard to see the first time buyers struggle to win when the competition is so fierce.

This is an unfortunate trend, one that is being repeated in many markets.

Posted by Bruce Brockmeier, Coached By Crouch (Internet Marketing Consultant to REALTORS®) almost 3 years ago

In our market here in south central Oregon, the availability of affordable homes (which would include fixers) is also compromised by lenders' need for homes to be perfect in order to finance them. No longer can a new home owner expect to purchase something for a lower price, that needs repairs of any kind. Sellers have to add the cost of repairs even before the home hits the market, or hope to get cash. Few first time home buyers have cash...

That type of dramatic increase is unheard of during my agent tenure. It is good for sellers but as you say, it's tough for new buyers. You have to wonder if affordability will be out for a good majority soon?

I agree with everything you say, and there may be something else going on here too. Most first time home buyers are millenial age now, and many of them are living with their parents and grandparents either because they cannot afford to buy a home, or because they do not want the responsibility of being a homeowner. Home prices are rising (slowly), and wages are not, at least where I live.